U.S. IRS probes drug company-funded patient assistance charity

BOSTON, June 29 (Reuters) - The U.S. Internal Revenue Service is probing whether a patient-assistance charity wrongly gave a benefit to its pharmaceutical company donors by returning most of the money they donated as payments for drugs they make, court papers show.

The inquiry focuses on Good Days, which operates a co-pay assistance program that it says since 2003 has provided more than $1 billion in assistance to patients to buy expensive drugs for chronic and terminal diseases.

The Texas-based charity, previously known as Chronic Disease Fund Inc, has since February filed several lawsuits in federal courts in three states and the District of Columbia to quash summonses the IRS served on drug companies that donated to it.

In court papers, the IRS said that in 2011, about 95 percent of the $129.3 million in assistance the charity provided patients to cover co-pays was spent on drugs made by the companies that had made donations for specific diseases.

“In other words, the vast majority of funds that are ‘donated’ by a pharmaceutical manufacturer are returned to it in the form of copay assistance,” Cathy Tai, an IRS agent, said in a court filing.

Robert Zinkham, a lawyer for Good Days, said it has been undergoing an IRS audit for almost four years. Good Days in court papers said it is “fully independent” from its donors.

Novartis said it is cooperating with the IRS. Genentech said it acts in accordance with the law. Other companies did not respond to requests for comment.

The IRS inquiry was first reported by Bloomberg.

As drug price increases have drawn the ire of politicians and the healthcare industry, concern has grown that donations made by pharmaceutical companies to patient-assistance groups may be contributing to price inflation.

Drug companies are prohibited from subsidizing co-payments for patients enrolled in U.S. government healthcare programs like Medicare and Medicaid.

But they may donate to nonprofits that can provide co-pay assistance as long as they do not influence how the charities operate.

Several drugmakers have disclosed they received subpoenas from the U.S. Attorney’s Office in Massachusetts related to their support for patient-assistance charities.

Zinkham said Good Days also received a subpoena but the probe appeared unrelated to the IRS audit. (Editing by Matthew Lewis)